A practice fit for the future

An architect's practice thrives on the skills, creativity and knowledge of its workforce and empowering employees to keep delivering top-quality work is important. For practice owners who may be thinking about succession plans, finding a structure which allows the business to continue to grow and develop can be difficult. Seeking alternative solutions to the traditional sale route is now becoming more popular, and the trend towards employee ownership (EO) structures is quickly gaining pace in the industry.

Gary Davie is Partner and Employee Ownership Specialist at Shakespeare Martineau and Trustee Director to a number of employee-owned businesses, including architects.

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uccession planning for many business owners in this specialist field can be fraught with challenges. For a number of architect practices, there is not always an obvious succession route via a trade buyer, particularly if the majority of value is held in personal relationships, rather than brand value. Additionally, new talent may find it difficult to enter the partnership due to the large capital injection needed to join, unless the practice is of a size which affords it readily available bank loans for new partner capital contributions. As such, this may be another barrier to finding a suitable succession option.

As well as finding the right successor, owners often want to protect the legacy and ethos of the business, to which many years has been dedicated. Encouraging members of staff to take on an active role in the running of the organisation and allowing owners to relieve some of the pressures of succession can form a mutually-beneficial solution.

While aligning the interests of a company and its employees can help the whole practice to focus on long-term sustainable growth, other evidence has shown that EO can also increase wellbeing and productivity amongst the workforce.

As well as some of the softer benefits, business-critical issues can be enhanced. Retaining and attracting top-quality talent is an area which has gained a lot of attention, and employee-owned benefits provide a way for architects’ practices to distinguish themselves from the competition. Being able to offer employees real ‘ownership’ and a level of responsibility that is not commonly available, can be a real unique selling point when attracting new candidates.

Many practices are partnerships and LLPs, so there may be some preliminary work to move the organisation to limited company status and take advantage of the benefits of EO. Part of this process will also include convincing all levels of seniority of the long-term benefits of the transition.

EO models can also bring financial benefits too. The disposal of shares which result in a controlling interest in a company being transferred to an Employee Ownership Trust are exempt from Capital Gains Tax, and income tax breaks are available on future profit-related payments to employees. The transition to an employee ownership model can be managed in stages, or by way of deferred payments, to relieve any pressure on cash flow or bank finance.

Business owners must think carefully about how much they want to stay involved going forward. Although employees indirectly may have a controlling interest in the company, boards and senior management teams will still be responsible for making nearly all business-related decisions. Contrary to some opinion, this is not management by committee, and should not interfere with management’s decision-making powers. However, it does bring with it a level of accountability to the wider workforce which was not present before.

With talent attraction, improved productivity and significant tax exemptions just a few of the benefits of adopting an employee-owned business structure, it is no wonder that more practice owners are going down this route.

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